Tax Collection Reminder
Individuals who owe taxes to the federal government would do well to enter into some form of installment agreement to pay those taxes.
In general, the IRS can collect an assessed tax for 10 years from the date of assessment with certain events extending that period. Taxpayers are only expected to pay what they can afford in accordance with published collection financial standards.
Sometimes even those standards can be negotiated depending on the taxpayer’s situation. The IRS can accept an installment agreement to pay the full liability but can also accept an installment agreement from the taxpayer to pay a portion of the taxpayer’s liability with the balance expiring at the conclusion of the collection statute of limitations (26 U.S.C. Section 6159).
However, when taxpayers refuse to attempt any sort of resolution for their back taxes, the IRS can reduce the deficiency to a judgement against the taxpayer under 26 U.S.C. Section 6502(a) and extend the 10-year period on collection. The extension lasts until the judgment is satisfied or becomes unenforceable under state law. That happened recently to a taxpayer in Kentucky who miscalculated the 10-year period and ignored the IRS’s requests for payment thinking the collection statute had run out. That apparently irritated the IRS, so they sought to reduce the deficiency to a judgement and won. (See U.S. v. Thomas Nugent, No. 5:16-cv-00380, U.S.D.C. for the Eastern District of Kentucky, January 12, 2018).
To qualify for an installment agreement, a taxpayer must be “current.” They must have filed all tax returns that are due and paid taxes for the most recent period through employer withholdings or estimated tax payments.
- Don’t ignore the IRS.
- Negotiate either an installment agreement or a partial pay installment agreement and start paying down the liability.
- If finances warrant it, consider other collection alternatives like an Offer-in-Compromise or request placement in uncollectible status.
- Taxpayers who negotiate with the IRS in good faith have better long-term outcomes.